PFAS by the Numbers: $165B Ground-Up* Litigation Losses Possible

When Frank Demento received a mailing from managers of his water district on Long Island last year, the news it contained seemed pretty good.

Executive Summary

Actuaries are used to dealing with numbers, but two numbers presented at a recent Casualty Actuarial Society seminar seemed to jump off presentation slides of a claims executive and an industry analyst explaining the emerging risk of PFAS. The first, 4 parts per trillion, is the EPA’s new standard for PFOA and PFOS in drinking water. The second, $165 billion, is the estimate that Verisk’s Arium liability modeling unit developed for potential liability claims before the application of insurance exclusions and other terms and conditions.

The level of a harmful chemical, perfluorooctanesulfonic acid (PFOS), in the district’s water supply was 5.9 per trillion (PPT), and the level of perfluorooctanoic acid (PFOA) stood at 6.8 PPT. Each of the figures fell below the 10 PPT limit set by New York State in 2020 and well below a 70 PPT figure that the U.S. Environmental Protection Agency once set forth in a non-enforceable health advisory back in 2016.

The district has already built two remediation plants and is building three more, reported Demento, a senior vice president and claims manager at TransRe, who knows a great deal about PFOS and PFOA, the two most common types of PFAS—per- and polyfluoroalkyl substances—now linked to various negative health consequences for people exposed to it. The reinsurance executive was among several speakers who discussed the presence of PFAS in water supplies and in products ranging from Teflon, Scotchgard, fire-fighting foam and electronics to hamburger wrappers, lip balm, carpeting and chocolate cake icing, along with the health and legal implications linked to exposure during a session of the Casualty Actuarial Society’s Seminar on Reinsurance in June.

Demento, shifting his perspective from insurance claims expert reporting facts and figures about the emerging risk issue to that of Long Island homeowner midway through his presentation, shared more excerpts of the water district update he received in the mail. “On March 14, 2023, the EPA released a proposed national primary drinking water regulation for PFOA and PFOS…This rule has considered additional updates to science and is responsive to peer review feedback provided by EPA’s Science Advisory Board,” the update stated. “If promulgated, the EPA’s proposed rule will reduce the maximum containment level to 4 parts per trillion for both compounds,” the mailing also said.

In fact, on April 10, 2024, the EPA did just that. “It’s the first-ever national legally enforceable drinking water standard to protect communities from exposure to harmful per-and polyfluoroalkyl substances (PFAS), also known as ‘forever chemicals.’ Exposure to PFAS has been linked to deadly cancers, impacts to the liver and heart, and immune and developmental damage to infants and children from PFAS,” says the EPA news release.

The 4-parts-per-trillion standard “is more stringent than any current state regulation,” Demento said.

“Four parts per trillion is equivalent to one drop of water in five Olympic swimming pools,” he said, noting that his own water district is now out of compliance with the federal standard. “The water is not safe for human consumption and they have to remediate it,” he said, also reporting that the EPA announced a rule designating PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)—aka Superfund—to “ensure that polluters pay to clean up their contamination” in April as well.

“Four parts per trillion is equivalent to one drop of water in five Olympic swimming pools.”

Demento’s community water district was already constructing new treatment plants using bonds, capital and grants to fund the projects. It is also suing makers of the chemicals “who knew or should have known their products would cause contamination—so that the treatment costs don’t ultimately fall on our customers,” according to the newsletter Demento received in his mailbox.

The water district is far from alone in suing over PFAS contamination. Demento would go on to reveal lists of settlement figures for cases against major PFAS manufacturers—starting with the first environmental settlement of $850 million by 3M in 2018, and including a more recent $12.5 billion ($10.3 billion present value) pact 3M announced to fund public water suppliers nationwide that detect PFAS in drinking water now and in the future.

In addition, he described personal injury litigation, listing some of the judgments, settlements and pending matters against an array of defendants that includes water providers and consumer retailers selling products with PFAS in their ingredients or packaging, along with a string of eye-popping disease burden estimates.

Related sidebar “More PFAS Numbers: How Much Will It Cost”

For the actuaries in attendance, the most disturbing figure Demento shared was probably an estimate of the asbestos-sized pool of loss dollars that could come from defendants and insurers who will tackle PFAS-contaminated drinking water litigation. “Arium modeling suggests ground up-losses from PFAS litigation could stretch north of $100 billion, ranging between $120 billion and $165 billion depending how certain trends evolve,” Demento said, quoting from a statement released by Verisk’s Arium liability modeling group just a few days before the pair of EPA announcements.

“Now, if this is true, PFAS is your new asbestos,” Demento said.

(Maybe asbestos and a half given that AM Best’s current estimate of the P/C industry’s ultimate net asbestos losses sits at $100 billion.)

At a later session, Lucian McMahon, senior manager, Verisk Analytics, stressed that the $165 billion figure is Arium’s worst-case estimate. Providing a basic overview of the liability modeling framework, and then its application to opioids and PFAS, McMahon revealed that while the PFAS range of modeled loss estimates includes payouts for different loss types—cleanup and remediation, bodily injury, property damage, medical monitoring and even some event-driven D&O losses—all modeled losses arise out of water contamination as the modeled exposure pathway.

Read more about Arium’s modeling framework in the 2023 article, “How to Model Systemic and Emerging Risks for Liability Risk Management” published online by Carrier Management.

McMahon also made it clear that Arium’s range represents ground-up losses— “economic losses in catastrophe modeling speak” (*). Essentially, the question Arium modelers are answering is “what might the payouts, compensation, settlements be that flow from defendant companies to plaintiffs before the application of any liability [insurance] terms and conditions,” he said.

“When we use those terms in the casualty cat modeling context, we mean before the application of terms and conditions. And that’s really the elephant looming in the room, right? What about the coverage and insurance implications for these ground-up losses?”

“It is our position in Verisk that we do not comment on coverage interpretations for these ground-up losses,” he said, describing some of the “nuanced coverage issues” surrounding opioid litigation. “But this type of modeling construct can provide the parameters through which carriers can begin to understand where they might have exposure, [and] what their losses might be under certain scenarios around the coverage interpretations…assuming exclusions hold, don’t hold, duty to defend, duty to indemnify. Carriers within a modeling construct like this can take the parameters of the event as a whole and begin to simulate how their portfolio may or may not respond to some of these claims,” McMahon stated.

Lauren Finnis, head of commercial lines, North America for broker WTW, who spoke with Demento at the earlier session, shared insights on terms and conditions—in particular, the introduction of PFAS exclusions and the applicability of existing pollution exclusions of liability insurance policies to the PFAS situation.

Finnis noted that case law is still developing as to whether or not PFAS is or isn’t covered under the pollution exclusion introduced in 1986. (See also “Courts Mixed on PFAS Coverage Litigation“) Carriers started to draft PFAS-specific exclusions in the E&S market for large complex accounts around 2018, when a Washington Post article dubbed PFAS the “forever chemical,” she said, adding that filed admitted exclusions followed in 2021. Displaying a graph of filed exclusions since that time, she said insurer filings took off in 2023 after ISO filed its version of exclusion language (43 percent of carrier filings referenced ISO) with total filings now approaching 20,000 from more than 87 carriers. “That’s probably almost 100 now,” she said, noting that the data was collected through April and suggesting that the EPA announcements fueled more filing activity.

Reserving? Not Yet

Finnis also shared her observations on how carriers are reserving for PFAS liability claims. She said that carriers are putting up reserves for environmental contamination and cleanup losses on a case-by-case basis but not booking any bulk IBNR provisions. For bodily injury claims, however, carriers are reluctant to set case reserves, said Finnis, who holds a masters of Accountancy, noting that U.S. GAAP and Statutory accounting standards only require accruals for contingencies that are “probable and reasonable.”

“Even when bodily injury claims are coming in, they’re often being reserved fairly low, if at all…because that is discoverable,” she said, noting that when there are questions about whether coverage actually exists, “the insurers don’t want to have that written down anywhere to be discovered later.”

Noting the recent EPA announcements, she speculated that carriers might soon start to set up bulk provisions, but noted that in order to do so, some need to get a better picture of the coverage on the books. “In the admitted space, we see some tracking. ‘Yes, we have the admitted version of this exclusion.’ But in the E&S space, and sometimes in admitted, there’s not often a clear track record of which policies have this exclusion, which policies don’t, how much of our book has this version of the exclusion vs. that version…From a portfolio management strategy, we think insurers should be doing more to be on top of this.”

“Something is definitely going to change in the next couple years, and we’re going to have more clarity,” she said, referring to EPA activity and the potential for specific causes of action to spread through the courts.

At the later session, William Wilt, president of Assured Research, recalled his days working as an actuary on asbestos and environmental loss reserving issues plaguing insurers in the 1990s—a decade after a majority of Superfund sites were designated for cleanup—highlighting the idea that election results might factor into the speed at which PFAS remedies are put into action and loss reserve provisions are set.

“Are we going back to the 1990s?” he asked repeatedly, recalling a time under the Clinton administration when EPA budget and staffing increased to fight “environmental horrors,” ultimately prompting SEC and NAIC disclosure rules, rating agency scrutiny and estimates of needed loss reserves and myriad research papers by actuarial consultants.

“We’re in the early innings” with PFAS, he said, noting that there’s only been one major actuarial paper about PFAS reserving today, that rating agencies have “expressed concern” but not specifically contemplated today’s mass torts in rating actions, and that the NAIC working groups are occupied with other issues—climate change, AI and cyber.

“Elections have consequences,” he added, noting that if there’s a change in the administration, it is unlikely that there will be an acceleration in the EPA pursuing corporations to pay for cleanups. If the current administration stays in place, a 1990s redux becomes a more likely scenario, he predicted.

100 Million People

At separate sessions, both Wilt and Demento wondered aloud whether the April EPA announcements could serve as a road map for plaintiffs lawyers pursuing PFAS litigation.

“The science is clear that PFAS chemicals are linked to a wide range of health harms including cancer, damage to cardiovascular and immune systems, poor pregnancy outcomes, and effects on the developing child,” said the CERCLA release, attributing the quote to Dr. Tracey Woodruff, Professor & Director, Program on Reproductive Health & the Environment/Environmental Research and Translation for Health at the University of California, San Francisco.

“It looks like a perfect summation in a jury case,” said Demento after reading the quote aloud to his audience.

Wilt highlighted changes in the litigation environment that have developed since the heyday of A&E reserve charges. Recalling details of a paper he wrote about asbestos liabilities in 2001, he said, “I referenced the state of the art to enroll potential claimants at that time was union roles. The lawyers would go and look through lists of people who belonged to unions working in certain industries and [conclude] they must have been exposed to asbestos.”

“Rather quaint compared to today’s really sophisticated processes that are in place using social media and search engine optimizations—all sorts of endeavors to target potential claimants and sign them up,” Wilt commented, also pointing to a surge in legal advertising for potential litigants in aqueous film-forming foam (AFFF) cases now consolidated in a multidistrict litigation (MDL) in the Federal District of South Carolina.

“The final rule will reduce PFAS exposure for approximately 100 million people, prevent thousands of deaths, and reduce tens of thousands of serious illnesses.”

“Doesn’t it lead you to believe then that at least a hundred million people were exposed to dangerous levels of PFAS?” Wilt asked after reading that excerpt of the EPA statement about the new PFOS and PFOA standards for drinking water aloud. “We came to the same place—that the government press releases absolutely read like a litigation road map for a plaintiffs’ attorney,” Wilt continued, agreeing with Demento’s observation at the earlier session.

Importantly, all the speakers at the CAS seminar made their remarks prior to a Supreme Court ruling handed down in early July, raising questions about the EPA’s ability to survive legal challenges to its interpretation of the Superfund law and others. And one audience member, anticipating the forthcoming decision, objected Wilt’s supposition: “Chevron deference is dying as we sit here. What makes this anything more than a press release if federal entities now need the approval of Congress, which will never happen, to actually implement any of this?”

(The Chevron deference doctrine held that if Congress has not directly addressed the question at the center of a legal dispute, a court was required to uphold a government agency’s interpretation of the statute as long as it was reasonable. On June 28, the Supreme Court overturned Chevron in its Loper Bright Enterprises v. Raimondo ruling holding that it was inconsistent with the Administrative Practices Act, which requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority.)

For his part, Wilt pointed out that thousands of cases sit in the MDL where water municipalities already recognized that concentrations of PFAS chemicals are too high. (Editor’s Note: Reuters recently reported what it believed to be the first lawsuit since the EPA announcement citing the new drinking water standard.)

Demento, who reported two big settlements—the 3M $12.5 billion settlement and a similar $1.2 billion settlement for The Chemours Company, DuPont de Nemeurs and Corteva—along with a more recent $750 million settlement for Tyco Fire Products, said that all three settle claims with public water suppliers. A second phase of the AFFF MDL will feature personal injury cases, he said, noting that he faces his own group of skeptics on the prospect of such cases becoming the next big mass tort.

“The question I get from my underwriters all the time is, ‘What’s the big deal about PFAS? You can’t prove causation, right?’ So, it’s only going to [covered] be under an EIL [environmental impairment liability] policy.”

He counters: “What are some of the big drivers of the nuclear verdicts? One is products liability, right? Here, you have products liability. “What’s another one? Consolidation of claims, which you have in the multidistrict litigation.”

In the MDL cases, defendants don’t argue that PFAS compounds aren’t harmful as part of their defense. Nor are they saying that the PFAS wasn’t present. “What they’re saying is this PFAS didn’t cause your specific injury,” he said. Defendants rely on chemical identification technology to determine if PFAS found at a particular location was part of their product, he noting, adding that such arguments, at trial, would essentially be an expensive battle of experts—that’s if they get to trial.

“With consolidation, you’ve got thousands and thousands of plaintiffs coming in one after the other…’I’ve got testicular cancer because there was PFAS in the water,’ [says one]. ‘I’ve got testicular cancer because there was PFAS in the water,’ [says the next]. It’s very difficult for juries to hear that over and over and over again and not link the two,” he said, reporting that no personal injury trials have progressed in the South Carolina MDL. “Everybody has been settling, and I think that’s going to be the way forward. No one is going to want to take this scenario to a jury.”

“What happens down in South Carolina is really going to answer a lot of questions,” he said.

Earlier in the session, Demento reviewed the outcome of the earliest class action by citizens of Parkersburg, W. Va. against DuPont (the subject of the film “Dark Waters”), which eventually led to the creation of a scientific panel that determined PFAS links to kidney and testicular cancer and other health issues. After settling three cases individually with plaintiffs having cancer, DuPont offered a settlement of $670 million for over 3,500 remaining cases, Demento reported. After one of the non-settling was awarded $50 million at trial, DuPont settled the rest for $83 million and set up an escrow account of $1 billion for future legacy PFAS liabilities with an aggregate cap of $4 billion.

Late last year, PFAS makers scored a victory when the U.S. Court of Appeals for the Sixth Circuit vacated a lower court’s approval of a class action against 3M, DuPont and eight other defendants, seeking medical monitoring for all Ohioans with trace amounts of PFAS in their blood. “Seldom is so ambitious a case filed on so slight a basis,” wrote Circuit Judge Raymond Kethledge in the first sentence of the opinion.

With no reference to that opinion, McMahon suggested at one point during his presentation that Verisk works hard to weed out overly ambitious pleadings from its estimates. “If you were to just take off the shelf the number of people exposed to PFAS in their drinking water, the numbers would quickly become absurd—maybe too strong a word, but astronomical tens of millions, if not hundreds of millions of people…We did not think that it was reasonable to assume that all of these individuals would be able to claim personal injury from their exposure to PFAS. So, we calibrated the model to seek to capture those areas that might have high exposure to PFAS, high levels of PFAS in their bloodstream, and therefore may have a higher likelihood of being able to successfully claim for damages,” he said.